By Fahriba Tasnuva Mahtab
A technology expert turned banker Mr. Syed Abdul Momen is one of the country’s leading authority in SME financing. He talks about his career and BRAC Bank’s pioneering role in SME Banking in an exclusive interview with Ice Business Times.
Having extensive national and international experience with Small-Medium Enterprises (SME) banking, could you detail your journey into the banking industry?
I was all through a technology executive. Later I switched to business, in a move that changed my entire career as a banker. I began my career in the technology department in ANZ Grindlays Bank in 1999. I got the opportunity to be a part in the migration of Core Banking Platform in the Middle East & South Asia region after the acquisition of ANZ Grindlays Bank’s operation by Standard Chartered Bank.
Later in 2005, I joined BRAC Bank’s technology team where I was part of the team engaged in the Core Banking Platform migration. My career got major break in 2007, when I was posted in BRAC Afghanistan Bank as Chief Operating Officer (COO) on a two year secondment. In Afghanistan, I got firsthand experience in the business. I looked after the bank’s SME Business & expanded bank’s network in three provinces and also contributed to the development of SME Banking Policies & Guidelines of Central Bank of Afghanistan.
After return from Afghanistan in 2009, I joined BRAC Bank’s SME Division and ran a special collection project, which was portfolio’s prime concern. After successfully driving the countrywide collection initiative, I was appointed as the Head of Small Business in July 2010 and since I have been leading the industry’s largest small business portfolio. I took over charges as the Head of SME Banking of BRAC Bank Limited in July, 2017.
What challenges did you face during the expansion process back in Afghanistan? How did you manage to overcome them?
Afghanistan was a war-ravaged country at that time. There were challenges everywhere. With the arrival of US soldiers, the security situation was improving, leading to the growth of many businesses and banks. Since the country is close to Pakistan, several Pakistani banks began operations. Standard Chartered also opened up the branch in Kabul. BRAC also had a vast operation in Afghanistan. In fact, they commenced five years before they launched their bank branch. SME financing was pretty new to them. We also revamped our SME portfolio there. BRAC Afghanistan Bank contributed significantly to the growth of SME financing including policy development in Afghanistan.
What do you think about BRAC Bank’s pioneering and leadership role in SME financing?
In 2001 BRAC Bank did not start its journey like any other conventional bank. The visionaries who led the bank realized that the previously neglected SME sector plays a significant role in generating growth and creating employment in the country. Over the past few decades, traditional banks were reluctant to invest in this sector. At a time when it was almost impossible for the SME entrepreneurs to get financing from the banking sector in Bangladesh, BRAC Bank stepped forward and came to the aid of these unbanked SME entrepreneurs. We can say that BRAC Bank has played the role of an agent of change in SME financing.
The bank’s overarching objective is to contribute to nation-building in terms of including SME businesses into the organized financial system, enabling them to scale-up their businesses and generate greater employment opportunities and a bigger share in GDP.
Our SME Banking is recognized for providing a dedicated and customer-driven sales force, cash flow-oriented lending assessments, robust distribution network, decentralized decision-making, shortest loan disbursement timeframe and continuous exploration of bringing the un-banked borrowers into the folds of formal banking finance. We can proudly state that BRAC Bank is the largest financier of collateral free SME loan with a market share of more than 50%. The outcome of our core competencies and a dedicated approach to customer service was reflected in BRAC Bank being awarded as the ‘Best Bank for SMEs’ by Asiamoney in 2017.
Our small business financing is engaged in helping micro, cottage and small businesses all over the country to give wings to their business through accessing our wide range of banking products. Small businesses are the most important drivers of economic activity in rural and semi-urban communities. Our Emerging Corporate assists aspiring small business entrepreneurs to graduate into a medium-sized one or even a corporate.
With its leadership role in SME, BRAC Bank is taking SME financing to the greater heights.
How does provision requirements facilitate SME financing?
The provisioning requirement in SME is 0.25% whereas it is 2.5% for retail loan. So it is ten times more. This is a big reprieve for SME sector. This plays as a motivation for the banks to finance more in SME. We have scope to work in definition of SME to reach more to the bottom of the pyramid.
The SME finance gap in Bangladesh is still 85%. Only 15% of eligible SMEs are being financed and this 15% not only includes banks but also Micro Financial Institutes (MFIs) altogether. So there is still room for another 85%; however, the gap is quite high seeing that there’s a lot of room for financing. A study says that almost 20% of our GDP contribution comes from SME. For a country like Bangladesh, the gap is high.
At present, 80% of manufacturing establishments are SMEs, accounting for 80% of the labor force, 50% of the output of the sector. What loan schemes do you have for different SMEs?
If you go anywhere, for example to the village, most of the SMEs are the small corner shops or maybe a local bakery or a sweet shop. Even if you go by the road, the shops that you see on your left and your right, all are of trading. So, mostly 70% is trading for SMEs. For economic development, manufacturing adds more value than trading. According to the central bank, even for a trading business specifically, if the yearly turnover is greater than Tk. 12 crores, you cannot report it under SME, you have to report it elsewhere or in the higher segment, or else you would not be able to get the benefit of the 0.25% provision requirement. So this is a measure the central bank is taking to provide more funds to the manufacturing and service sector. The manufacturing platform is slowly growing, but for it to really grow, we need to provide more support in terms of trade license and tax registration. They need assistance in those areas because they don’t have know how to do these things. Financial literacy is also required. Our loan officers actually sit in the shops for a few days and observe the number of sales and then they generate a balance sheet for them for financial purposes. We explain them ways to maintain the statements, then after one year, when they get their repeat loan, then we analyze it. Sometimes failure to maintain statements bars them from availing a repeat loan. The enhanced loan amount will be received by clients after a year; that is the incentive for them to get organized and keep track of financials.
With Anonno, Apurbo, Shomriddhi Rin, Shompod Rin, Bahon and TARA SME Loan, our SME products has a financing solutions for each and every SME entities.
Women entrepreneurs got only 2.81% of total SME loan of Tk. 1,23,046 crore disbursed up to September last year. In this context, BRAC Bank focuses on loans to support female entrepreneurship. Could you detail some of the services you have for women such as TARA? What are some of the leadership programs you have for women?
When you go to any other bank, you see there is a product especially for women such as SME loans for women. However, there’s no segment dedicated solely to women. So, our TARA concept specialized to cater women customers holistically. It targets women of various age groups, starting with a student up to the housewife and elderly. So, it includes all women. This means that all banking services for a woman will fall under TARA and they will get preferential rates, services such as TARA branded credit card. The credit card will provide different lifestyle discounts and facilities which are only given to the TARA branded cards. Even if a woman opens a deposit account with us, she will get a TARA branded debit card which a male depositor will not receive. similarly, if a woman takes an SME loan, she will get a TARA SME loan. The same thing applies to salary loan, auto loan, home loan. We also hold round the year programs under TARA. In fact, we had a healthcare program recently, which was designed to help the busy officer goers and housewives who don’t get the time to seek medical care. They get the medical consultation from three renowned gynecologist, pediatrician, and nutritionist. They conducted 45-minute sessions for the selected TARA customers and spoke on a topic and took feedback from the audience and tried to resolve their problems. TARA has the partnership with Grameenphone’s Telenor Health Tonic and for our SME loan customers, we give Tonic subscriptions free for one year. TARA has gained recognition internationally too; we have got membership of Global Banking Alliance for Women (GBA). GBA also conferred BRAC Bank with Global Market Champion Award for launching TARA. We have been selected to showcase our TARA concept in the UK GBA conference. Our TARA program has also garnered fame among the SME finance Forum which is also another wing of IFC. We have plans in the pipeline to showcase that in their next event in Madrid in November.
How do you think supporting and introducing SMEs to the formal economy can support national growth?
The SME finance gap in Bangladesh is still 85%. Only 15% of eligible SMEs are being financed and this 15% not only includes banks but also Micro Financial Institutes (MFIs) altogether. So there is still room for another 85%; however, the gap is quite high seeing that there’s a lot of room for financing. A study says that almost 20% of our GDP contribution comes from SME. For a country like Bangladesh, the gap is high. Other countries in the South Asian region such as India, Pakistan, Nepal, Bhutan, Sri Lanka – everywhere it is all the same. Our gap is actually lower than that of Bhutan and Nepal right now. India’s provisions for SME financing is much lower than ours because their SME is very big as their manufacturing segment is very high so their SME is considered as large customers in our economy. The SME that we talk about, which is around Tk. 8 lac loans, that is an area where they are far behind us. Financing is not available in this segment, hence they have recently given license to 10 small finance banks. Since they have provided license specifically to these banks, they can only finance small businesses, instead of compelling them to do more SME lending. It so happens that many MFIs in India are now converting themselves into small finance banks in order to achieve sustainable economic growth.
How do you think agent banking can facilitate SME financing?
You have to gear up the SMEs, do more decentralized development, and then only can you grow as a whole. Our SME, from inception, it is focused only on the financing. We have around 450 SME unit offices across the country, but we only do the lending piece because we have only 186 branches where they can do transactions. As for lending, we have 450 offices so there are still around 350 where we do not have transactional facilities. But the SMEs need financing as well as transactional facilities. This is why we are launching agent banking operation this September. Through agent banking, these 450 SME offices will be having transactional facilities, such as deposit products and transactional services. We are also planning to provide e-commerce facilities there as well so that people can order their products and receive it from our agents. We are doing a lot of things on the agent banking field and our plan is to have 25,000 agents over the three years. So, in every corner of the country, there will be agents and banking services available at small shops, such as money deposition and transaction. I think agent banking is the next big thing in the banking sector in the country.